The Evolving Role of China in the Global Economy

Jack Morton Auditorium

Seminar report

Panelists exchanged views on a number of key challenges facing China, including its growth outlook, overcapacity in some industries, debt burden, RMB internationalization, and financial regulation and supervision.

Key Points:

China’s growth outlook. Lipton noted that the upward revision of the IMF’s forecast of China’s growth mostly reflected the measures that the government had set up to strengthen the economy. Huang believed the growth momentum will carry on and expected a 6.7% growth rate in 2016. Fu stressed that the economic transition is a long-term effort and may take several years.

Overcapacity. Besides the coal mining and steel industries, which the government is already focusing on, Fu pointed out that some other industries also face this problem, including the refining industry that has 20-30% overcapacity. He emphasized that reducing capacity should be a gradual process and policy makers need to be prepared for the associated consequences, such as laid-off workers and lower tax revenue. Lipton highlighted that the key is to have the right combination of policies, which would encourage exit where there is excess capacity and low profitability, and allow investment to flow to areas in need. Huang and Lipton noted that more should be done to channel the high savings of households and the private sector to the productive areas.

SOE reform. Huang thought that the progress of SOE reform has been slow. Lipton emphasized that the SOE reforms should not only empower the enterprises with more autonomy but also held them accountable for their own decisions.

Debt burden and debt-equity swap. Lipton remarked that the current debt burden needs attention but is not at crisis level. The key is to continue rebalancing and undertake market-based financial reform. Panelists agreed that the debt-equity swap should only be used for companies that have relatively good assets and prospects, while companies with bad assets should be subject to bankruptcy. Lipton underlined that the key is to bring in changes to the management team and strategy regardless of the approach.

RMB internationalization. Fu noted that the inclusion of the RMB in the SDR basket is good for the long run but was concerned that the pace of RMB internationalization might be proceeding too fast. Lipton emphasized the need to sequence the reforms properly, and to develop a more market-based monetary policy framework before opening China’s capital account. He added that the move to a new monetary policy framework and floating exchange rate regime is in the intermediate horizon. Huang thought that RMB internationalization not only provides an incentive but also acts as a catalyst for other reforms in China.

Financial regulation model. In response to a question on what type of financial regulation model may fit China better, Fu was of the view that the model should depend on the stage of development. Lipton pointed out that in a good model, the supervisory authorities should have the right incentives and each agent should play a proper role within a coordinated system with free flow of information. Huang highlighted that regulators should have the right objectives and right tools, and that macroprudential regulation should be part of the central bank’s mandate.

Quotes:

“The key (of reducing excess capacity) is to have the right combination of policies, which should encourage exit where there is excess capacity and low profitability, and allows investment to flow to where it should, so that growth can be sustainable.” David Lipton, First Deputy Managing Director, IMF

“The transition of China’s economy, especially in the manufacturing industry, is not a short term task. The challenge is to reallocate laid-off workers to their new jobs and to make companies profitable. The whole industry needs to be upgraded and needs the input of innovative technology.” Fu Chengyu, B20 Co-chair for Infrastructure Taskforce and Chairman of China Petroleum and Chemical Corporation

“There is no best (financial regulation) model, only suitable model. The model should depend on China’s development stage.” Fu Chengyu, B20 Co-chair for Infrastructure Taskforce and Chairman of China Petroleum and Chemical Corporation

“China will continue to grow at a decent level, and its GDP growth contribution to the global economy would be about 30 percent in the next ten years. If the global growth rate goes up, China’s growth rate will go up. If global growth rate comes down, China cannot stand alone.” Huang Haizhou, Managing Director and Member of Management Committee, China International Capital Corporation

Moderator: Yang Yanqing, Deputy Editor in Chief of China Business News

Yanqing Yang is Deputy Editor-in-Chief and Anchor of China Business News (CBN). Previously, she was a senior reporter covering finance and business in Liberation Daily. Ms. Yang is a media leader and moderator at various events, including World Economic Forum, Shanghai Forum and IMF conferences. She holds a BA, MA and PhD in Economics from Fudan University. She was a visiting scholar at Johns Hopkins University, USA.CBN has been a media partner for the Fund’s Annual and Spring Meetings for over five years.

panelists

David Lipton, First Deputy Managing Director, IMF

Mr. David Lipton has been First Deputy Managing Director of the International Monetary Fund in 2011. Before coming to the Fund, he was Special Assistant to the President and Senior Director for International Economic Affairs at the White House. Previously, he served as Under Secretary for International Affairs at the U.S. Treasury.

Fu Chengyu, B20 Co-chair for Infrastructure Taskforce and former chairman of China National Offshore Oil Corporation (CNOOC) and chairman of China Petroleum and Chemical Corporation (SINOPEC Group)

Mr. Chengyu Fu is B20 Co-chair for Infrastructure Taskforce and former chairman of China National Offshore Oil Corporation (CNOOC) and chairman of China Petroleum and Chemical Corporation (SINOPEC Group). Mr. Fu has a long and distinguished career in China's energy sector and worked his way up from Daqing, Liaohe and Huabei Oilfields before joining CNOOC where he held various senior positions, including  Executive Vice President of CNOOC Limited, Vice President of CNOOC, President of CNOOC and Chairman of CNOOC Limited, and Chief Executive Officer of CNOOC Limited. Mr. Fu served as Chairman of SINOPEC Group and Chairman of SINOPEC Corporation between 2011 and 2015. He graduated from China’s Northeast Petroleum Institute majoring in geology, and later received a master's degree in petroleum engineering from the University of Southern California. Mr. Fu was awarded “CCTV China Economic Annual Figure” in 2005 and “China Business Leaders Awards” in 2006. He was also selected as one of the “Top Ten Leaders for Energy and Petrochemical Industry in China’s 30 Years' Reform and Opening-up”, “Corporate Leaders for Social Responsibility” in 2008, and “The Best-Performing CEOs in the World” by Harvard Business Review.

Huang Haizhou, Managing Director and Member of Management Committee, China International Capital Corporation (CICC)

Huang Haizhou, Managing Director and Member of Management Committee, China International Capital Corporation (CICC). He has held various senior positions within the CICC since December 2007, including Chief Strategist, Executive Chairman of Research Committee and Co-Head of Research Department. He served previously as the head of Greater China research at Barclays Capital from 2005 to 2007. Between 1998 and 2005, he was an Economist/ Senior economist at the International Monetary Fund's Monetary and Exchange Affairs, European and Research Departments. Mr. Huang taught and conducted research at The Chinese University of Hong Kong and The London School of Economics. He served as a Research Fellow at The London School of Economics and Political Science, the United Kingdom, from January 1995 to June 1998. Mr. Huang is a Fellow of China Finance 40 Forum, a leading discussion forum for financial professionals and policymakers. He holds a Ph.D. degree in business from Indiana University, and a Master and Bachelor degrees, both in engineering, from China.

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